The Separation of Banking and Commerce in the United States: An Examination of Principal Issues

Banking law and regulation in the United States have customarily restricted the nonbanking activities of banks and the banking activities of nonbanking firms, producing a separation of banking from commerce. While such separation is surprising in a free market system that, in general, permits private firms to engage in any lawful business, it is understandable in an historical and institutional context. Proposals for change raise a wide range of economic and other issues. This paper identifies, catalogues, and elaborates these issues to provide a framework for informed judgment and further investigation. It begins with a review of early restrictions on bank activities in the United States and contrasts U.S. developments with those in several other countries in which banks have not been separated from commercial and industrial firms. It, then, reviews relevant issues arising in the financial sector, commercial sector, related to central banking and supervision, and socio‐political concerns. It concludes that limited banking, as it exists in the United States, and universal banking, as it exists in other countries, have differential benefits and costs. Summary evaluation based on standard cost benefit analysis, however, presents serious difficulties. Considerable uncertainty remains about effects in a number of areas. Many of the costs and benefits are not quantifiable, and some that are quantifiable are incomparable. A careful review of all existing evidence, identification of gaps, and further investigation is needed.     

New Estimates of Economies of Scale and Scope in Higher Education

Following Colin, Rhine, and Santos (1989), we reeslimate cost functions for 1492 private and 1450 public institutions of higher education (IHEs) in the United States, using data for fiscal year 1995-1996. Costs are modeled as a function of the level of production of three outputs: undergraduate education, graduate education, and externally funded research. We find that public and private IHEs are characterized by significantly different cost functions. At the sample means of the variables, we estimate that public and private IHEs enjoy both ray economics of scale and product-specific economies with respect to production of all three outputs. However, we also find that, at the sample means, both public and private institutions are characterized by diseconomies of scope in the production of these three outputs. Our findings suggest that both public and private IHEs could reduce their unit costs of operation by growing relative to the current mean levels of production.     

Convergence: International comparisons based on a simultaneous equation model with regional effects

A structural model incorporating regional effects is fitted to cross-sectional data for 60 countries. The model integrates various strands in the literature, including the dynamic Verdoorn Law linking productivity growth to output growth, and relationships between educational attainment, trade and innovativeness. Most notably, the structural model supports the thesis that a country's innovativeness and, consequently, capital stock growth, depend on the level of technology in the 'surrounding' region.The approach adopted is set within the context of the theoretical and empirical analysis of increasing returns and cumulative causation. However, the resulting parameter estimates lead to a reduced form that implies convergence to an equilibrium rather than divergent productivity levels. The equilibrium productivity level ratios (vis-à-vis the USA) indicate that countries are converging on different levels, although a group does attain the USA productivity level.     

Export entry and exit by German firms

Export Entry and Exit by German Firms. — While exports have played an important role in German business cycles, little is known about the export supply response of German firms. This paper presents a dynamic model of the export decision by a profit-maximizing firm. Using a panel of German manufacturing plants, we test for the role of plant characteristics and sunk costs in the entry decision. We find evidence for substantial sunk costs: exporting today by a plant increases the probability by 50 percent that the plant will export tomorrow. This advantage depreciates quickly, falling by two-thirds in a year. The authors also find evidence that plant success, as measured by size and productivity, increases the likelihood of exporting.     

Relative Wage Variation and Industry Location in the United Kingdom*

This paper shows that both relative wages and industry structure vary considerably across regions of the United Kingdom. In accordance with the neoclassical model of trade, regions abundant in a factor (i) exhibit lower relative prices of that factor than regions scarce in the factor, and (ii) tend to specialize in a mix of industries intensive in the use of the factor. We show that this specialization leads UK regions to be asymmetrically exposed to external macroeconomic or international trade shocks.     

Correction note for ��The large-maturity smile for the Heston model��

The papers (Forde and Jacquier in Finance Stoch. 15:755?C780, 2011; Forde et al. in Finance Stoch. 15:781?C784, 2011) study large-time behaviour of the price process in the Heston model. This note corrects typos in Forde and Jacquier (Finance Stoch. 15:755?C780, 2011), Forde et al. (Finance Stoch. 15:781?C784, 2011) and clarifies the proof of Forde et al. (Finance Stoch. 15:781?C784, 2011, Proposition 2.3).